NAB boss: rate cut may not help economy

ANOTHER cut to interest rates may not help the economy, but it won't hurt it either, the boss of National Australia Bank says.

The Reserve Bank of Australia is expected to cut the cash rate to a record low of 2.5 per cent when it meets next week.

But Cameron Clyne, the chief executive of NAB, says a rate cut may not provide much of a boost the economy, given the low confidence levels of many businesses.

"If I talk to Australian businesses about why they don't want credit at the moment, I've had virtually no one say its because of the level of interest rates," Mr Clyne told a business lunch in Sydney.

NAB is Australia's largest business lender, with more than $122 billion in loans to corporations.

But Mr Clyne said the RBA should cut next week, and NAB expects a further quarter of a percentage point cut later in the year.

"I think that while inflation is under control then an interest rate cut can't hurt," he said.

"Because while it might not necessarily be stimulatory, what it does do is provide repayment relief to businesses and consumers that may require it."

Mr Clyne also said the federal government should be looking to go deeper into debt in order to fund infrastructure projects that will lift productivity and help the economy to grow.

"Australia has a debt problem: we don't have enough," Mr Clyne said.

There is an estimated backlog of infrastructure projects worth between $600 billion and $700 billion, and the current political aversion to debt was hurting the nation's ability to tackle the issue, he said.

"We are having a very immature debate around debt in this country at the moment," Mr Clyne said.

"We have a unique window as a AAA rated nation to issue that debt and convert it into productive infrastructure."

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